IFLR Asia Capital Markets Forum 2017: key takeaways

Author: Karry Lai | Published: 29 Nov 2017

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Keynote speech: Romnesh Lamba, co-head of market
development, HKEX

increasing connection between Hong Kong and China through
Stock and Bond Connect, and the goal to expand asset classes
in Hong Kong through fixed income, currency and commodity
(FICC);

China has $36 trillion in bank assets, $8.6 trillion in
equities, $10.9 trillion in bonds, in contrast to the US
where bank assets, equities and bonds are in more equal
quantities - equities and bonds expected to continue to grow
faster than banking system in China;

foreign participation in bond market remains small, at
only 2%;

China onshore bonds included in newly-created indices
such as Bloomberg-Barclays fixed income indices, like MSCI
for equities;

Southbound Bond Connect to follow in due course.

Regional equity capital market updates

Securities and Futures Commission of Hong Kong (SFC) is
using powers that it already has but these powers just
haven’t been exercised before;

SFC using letter of mindedness (LoM) before letter of
rejection for listings;

the exchange needs to provide a clear picture to market
on suitability, very subjective, have to preserve flexibility
but give certainty;

speed, access to market and transparency are the main
deciding factors for companies choosing listing venue;

US’ approach is as long as you tell full
story to investors, they have the information to make
decisions and can rely on class action lawsuits, SEC is in
driver’s seat and exchanges play a subsidiary
role with no role in reviewing IPO application processes
which helps to streamline;

US companies have greater diversity in shareholder base
whereas companies in Hong Kong are more family owned which is
a factor to consider when deciding on weighted voting
rights;

need to accommodate for new economy and pre-profit
companies on exchanges;

next big wave is biotech and companies are desperate for
capital in China, failure to figure out how to accommodate
for these companies means lost opportunities.

Opportunities and challenges in high
yield

twice as much volume in deals in 2017 compared to 2016,
with National Development and Reform Commission (NDRC)
approvals for offshore debt issuance came all at once in
October;

regulatory restriction with CNY allowed to be used only
for Bond Connect purpose, can’t move CNY around,
banks required to report suspicious activity on arbitrage
between CNY and CNH, can’t play market not
intended by regulator;

OBOR involves over 60 countries, 31% of global GDP,
estimated to account for 80% of GDP by 2050;

at the end of the day, bankability of projects is key:
Hong Kong big opportunity to facilitate funding through
initiatives such as establishment of Infrastructure Financing
Facilitation Office, cross-border lending platform for
foreign banks;

Russia largest recipient of funding, Russia has started
accepted RMB, followed by Pakistan, mostly by China;

how much financing can be done in RMB is key, Hong Kong
platform for dollar financing.

Best practices in KYC, AML and regtech

regtech to help get data automatically, streamlines
reporting and allows less room for human error in handling
investigations;

helps with accuracy, digging information in emails;

often difficult for technology to identify and remediate
problem, doesn’t necessarily speed up process
with handling problems such as different naming conventions
ex: Korean/Chinese names, can create false alarms;

need to cater to company headquarters but
can’t breach local laws.

A look into regulatory enforcement in
China

cooperation between CSRC and SFC on manipulative trading
but Hong Kong has no jurisdictional right, working to tackle
problem, unanswered questions of how CSRC can help to serve
notice for suspects and witnesses to appear in front of SFC
investigations, whether interview record is admissible in
Hong Kong court;

after 19th Party Congress, the 'financial
super regulator,' the Financial Stability and Development
Committee, began operation, areas of concern in shadow
banking, asset management, internet finance, initial coin
offerings, peer to peer lending;

CSRC requires real names for account opening, can see who
is trading, Hong Kong just sees broker, takes time to find
out who is behind and for meaningful information to be
revealed;

NDRC naming and shaming companies that fail to register
for offshore debt issuances, five bond issuances of 364 days
given risk warning, if happens again, put in system and would
affect credibility in future;

private vs. public bonds-private ones no public record,
would only know if a dispute arises, public ones are easy for
NDRC to find out, does check prospectuses, especially on tax
issues.